Wanna know where stocks will go? Zoom out.
Widen your lens to see the full picture and avoid getting pump faked.
We’ve seen a face ripper rally off the lows. However, my thesis has not been invalidated. In fact it’s been strengthened: no matter where we end up on June 30th, the candlestick charts will be bearish.
Let’s start with the rally in April. A lot of people (i.e. retail investors) have been pump faked by this hammer on the monthly chart:
But was it even a valid one?
Here is quick overview on hammers. The strongest hammer signals look like this:
Hammer must appear after a “significant” decline
Close near the highs (i.e. little to no upper shadow)
Ideal lower shadow is 2.5-3X body length
Here, we have none of that.
The decline, relative to the rest of the chart, was not significant.
April did not close near the highs (very noticeable upper shadow)
The lower shadow is one of the longest shadows I’ve seen on a chart - ever.
In fact, Steve Nison, the Godfather of candlesticks who brought them to the West, says if the lower shadow is “too long”, it signals a market breakdown and weakness. Especially at a market top.
More importantly, traders need to zoom out to avoid pump fakes. Take a look at this quarterly candlestick chart:
Not so bullish, is it?
That “hammer” is actually forming into a Hanging Man, which is VERY bearish at the top of a market… If we closed the candle out today, it’d be a major sell signal. But we still have 5+ weeks for this candle to finalize…
So, back to my original thesis: no matter where we end up on June 30th, the candlesticks will be bearish.
If we go higher and close at the highs, it will be a “melt-up”. Bearish.
If we go back to the open for Q2 on April 1st, it will be a long-legged doji. Bearish.
If we close below where we opened on April 1st, it will wipe out May gains. Bearish.
The only scenario where we end up bullish is if a) we go back to the lows of April, and b) then rally to the highs of May. All by June 30th.
Very unlikely, but anything is possible.
DISCLAIMER: I remain long my LEAP Puts on NVDA 0.00%↑ META 0.00%↑ TSM 0.00%↑ QQQ 0.00%↑ CMCSA 0.00%↑ SMCI 0.00%↑ DKNG 0.00%↑ UBER 0.00%↑ NFLX 0.00%↑ PLTR 0.00%↑ AMZN 0.00%↑
This is a bet on a significant market decline over the next 9-18 months.